IBASeoul: Progression on the Belt and Road

Opportunities presented under China’s Belt and Road Initiative have been firmly on the radar of pra...

Opportunities presented under China’s Belt and Road Initiative have been firmly on the radar of practitioners specialising in construction, infrastructure, shipping, mining and energy for some time now. Today at the IBA annual conference in Seoul, delegates saw the initiative’s wider scope.

While China’s Belt and Road Initiative (BRI) is now widely familiar to disputes practitioners, certainly those throughout Asia-Pacific, Eurasia, the Middle East, Africa and Europe, fully identifying which projects fall under the initiative, including those falling outside of its core sectors, has been a difficult task.

Co-chaired by Caroline Berube, managing partner of HJM Asia Law & Co, and David Liu, a partner at JunHe, who both co-chair the IBA’s China Working Group, the panel gave a snapshot of developments in three jurisdictions – Indonesia, Kazakhstan and Italy, looking at projects to date, as well as assessing some key challenges.

One of China’s reported strategic aims for BRI was to offload high reserves of foreign currency, as well as manage excess capacity for steel and cement and internationalise the renminbi (RMB), said panellist Eric Jiang, senior partner at Jurisino Law Group. However, he added, economic pressures – such as its trade war with the United States – meant there was increasing pressure on China’s government to slow down spend on foreign currency, albeit statistics on its reserve still looked good.

Despite any slowdown, BRI is making good progress. To date, China has signed cooperation agreements with 129 countries and 29 international organisations, China-Europe freight trains operating through 50 countries had made 14,000 trips as of March this year and BRI investments surpassed USD 90 billion between 2013 and 2018.

Speaking to CDR recently, Herbert Smith Freehills partner Tomas Furlong said practitioners were keen to see two imminent judgments out of the new International Commercial Courts, which although not BRI-related disputes, should shed some light on the approach taken by judges.

Others remain sceptical, particularly as judgments made by new courts are seen to be made by the Supreme People’s Court, meaning there is no right of appeal, only that of requesting a retrial under Civil Procedure Law.

JURISDICTIONAL DEVELOPMENTS

Turning to BRI activity in Kazakhstan, Kurmangazy Talzhanov, co-managing partner of Integrites, highlighted the country’s role as an important transit route for China, with Chinese investments into Kazakhstan, mainly in logistics, energy, infrastructure and environment, totalling USD 400 million in 2018 alone.

To his knowledge, all BRI projects in Kazakhstan had provisions in their contracts for disputes to be heard by the AIFC International Arbitration Centre in Astana or the International Commercial Court, perhaps challenging some views that China is forcing most disputes to be held in the Mainland.

In Indonesia, meanwhile, many projects are underway, including several within the Indonesia Morowali Industrial Park – a joint venture established in 2013 between Shanghai Decent Investment, Bintang Delapan Group and PT. Sulawesi Mining Investment, as well as the Kalimantan Hydropower Plant which has a total estimated investment of USA 17.8 billion.

Lesser known, are BRI investments in the technology sphere, said Rusmaini Lenggogeni, partner at Soewito Suhardiman Eddymurthy Kardono (SSEK). She pointed to what she called Chinese tech “juggernauts” – Tencent, Alibaba and DiDi Chuxing – getting a foothold in Indonesia through investments in tech and e-commerce companies.

In Europe, Italy is the first G7 country to have signed a memorandum of understanding with China relating to BRI. This represented a rethinking of ancient routes, said Enrico Toti, of counsel at NCTM Studio Legale, who also outlined that Chinese investment went beyond infrastructure and construction, even extending into fashion, while other significant deals have been seen with Pirelli, Terna, Ferretti and Candy Group.

Further, Toti was keen to note that China was these days more about quality than quantity, its interest in Italy was a reflection of this, he added, before outlining more political motivation, suggesting that BRI could turn into an alternative to the North Atlantic Treaty Organization (NATO), which would redress the power currently held by the United States.

RISKS AND CHALLENGES

Published in the China Working Group’s September newsletter was an example of how China’s government has struggled to make inroads in Poland; namely through what partner Mirella Lechna of Wardyński & Partners said were “simple formal mistakes” despite there being a lot of BRI potential in the country and robust public procurement legislation banning preference towards national or European companies.

Such issues she said, could be down to a mistrust among Polish contracting authorities, particularly given the failure of Chinese company China Overseas Engineering Group Co (known as COVEC) to complete a government contract to build a motorway in Poland in 2011.

New European Union foreign investment screening regulation that entered into force in April this year may also hinder China’s investment into Europe, Toti explained. While other hurdles remained across Belt and Road jurisdictions including labour issues – despite the existence of local content requirements, xenophobia, language barriers, problems around merger clearance and licencing, environmental concerns, foreign currency control, transparency and worries over anti-corruption compliance; although the latter had seen the introduction of an initiative by China known as the ‘Clean Silk Road’ to tackle bribery and corruption.

Summing up, Jiang noted there are as many challenges in China itself than there are elsewhere. Despite some bilateral investment treaties, there is no true legal trade and investment framework along the Belt and Road, as well as difficulties for Chinese investors assessing risk in destination countries. Something that disputes practitioners ought to bear in mind when assessing disputes risk for clients.

That said, the picture was positive, said Liu, who noted 250 new BRI-related projects in 2018 totalling an estimated USD 300 billion, 23 projects of which were valued at USD 1 billion each.

CDR is launching a new guide – CDR Essential Intelligence: Belt and Road Initiative. Please contact publisher george.archer@glgroup.co.uk for more information on how to contribute.

Enjoyed this article?

Latest Print Edition

CDR Spring 2019

Subscribe to CDR

Subscribe now and access all of CDR's daily news and analysis, complete with a full archive of all articles and PDF back issues of CDR magazine.

Related Firms

Related Articles

The post-coronavirus world will bring plenty of arbitrationsand interesting legal questions, but plenty of practical challenges too, according to speakers at an online Chartered Institute of Arbitrators event.

The London Court of International Arbitration hosted an unprecedented number of arbitrations in 2019, with its own arbitral rules proving particularly popular, as it prepares for an expected wave of Covid-19 cases in 2020 and beyond.